Burger King’s Strategy: Cut Costs, Sell Coffee

Burger King (NYSE:BKW) reported fourth-quarter and full-year 2012 results on Friday that had shares trading up as much as 4.1 percent. In need of some good news after sliding nearly 7 percent in the first two weeks of February, and with industry projections generally bleak for 2013, the burger maker served up results that showed substantially reduced costs and a strong game plan for the coming year.

Fourth-quarter highlights included 2.7 percent comparable-sales growth and a system-wide sales increase of 6.7 percent. Adjusted diluted earnings rose an attractive 57.8 percent to $0.23 per share as the company shifted to a franchise-owned store model that dramatically cut costs. The strategy increased the company’s fourth-quarter EBITA margin from 26.5 percent in the year-ago period to 43.2 percent, yielding earnings growth even though total revenues fell 30.33 percent for the period. To round it all out, Burger King increased its cash dividend by 25 percent from the previous quarter to $0.05 per share.

Catalyzing some of Burger King’s sales growth were aggressive adjustments to its menu, a strategy that many restaurants have used recently to counter a general decline in demand. The collective tightening of consumer belts in America, thanks to ongoing economic headwinds and and the recently-expired payroll tax holiday, has forced restaurants across the board to focus on value in order to attract customers…